Thesis Data Background Work
Teresa Rokos
February 2019
Introduction
Abstract
This thesis evaluates how the market power of insurers and hospitals in geographical sub-markets determines the prices insurers and hospitals negotiate for hospital care. I will examine to what extent the variation in prices is explained by variation in costs and quality versus variation in market power, which may play an important role in bilateral price negotiations for services. Using carrier-hospital specific prices for outpatient medical procedures from New Hampshire’s NH HealthCost website, I compare the estimated prices for the same services across the state, both between hospitals and within hospitals.
Motivation
The U.S.’s expenditure on health care has grown rapidly over the last few decades and has outpaced that of many peer countries without significant returns to quality (e.g. OECD 2017; Etehad and Kim 2017; Reinhardt et al., 2004). A substantial body of research has determined that the biggest driver behind the U.S. health care expenditure is not greater utilization or social spending but quite simply higher prices (e.g. Anderson et al., 2003; Papanicolas et al., 2018). Given that the $3.3 trillion spent on health care annually (17.9% of GDP) (Centers for Disease Control and Prevention 2017) erodes the budgets of families and individuals, state and local governments, and the federal government, understanding the sources of variation in these prices is of tremendous import.
I choose to focus this paper on hospital prices because hospital care constitutes the largest component of U.S. health care spending at 32.4% ($1.0825 trillion) of national health expenditure (Centers for Disease Control and Prevention 2017) as shown in Figure 1, and a vast body of research has identified wide variation in private insurance reimbursements to hospitals for the same services and/or diagnoses citations. Cooper et al., 2015 finds that for the privately insured, only about half of the variation in expenditure is due to the quantity of care delivered while half is purely driven by price variation while 95% of the variation in expenditure for public programs like Medicare is explained by variation in the quantity of care delivered. 
Given that the largest portion of Americans (49%) receive health care coverage from their employer through private insurance plans rather than through Medicare and Medicaid (Kaiser Family Foundation 2017), this price variation among private insurers may affect what many Americans pay out of pocket for their healthcare. Moreover, this prior research such as Cooper et al. 2015 finds that this variation persists even when costs and quality are held constant.
This paper is most closely related to Cooper et al. 2015, but differs in several key respects: first, this analysis will focus a more complete set of price data for hospital care in New Hampshire, while Cooper et al. 2015 relied on HCCI data which is a national cross-section sample and relies on claims data from Aetna, Humana, and United Health. While the HCCI data is a rich set of data that is perhaps nationally representative in a broad sense, none of these insurers are major players in the New Hampshire market; secondly, this paper will devote more attention to insurers’ relative market power as well as the effects on the uninsured who have minimal market power; lastly, I also include an analysis of how the share of Medicare patients at a given hospital affects the prices that hospital negotiates with private insurers.
Price Variation in the New Hampshire Market
The New Hampshire Hospital Association provides a list of the most commonly performed outpatient services (for some reason, the top 82 most common) at hospitals throughout the state, and the average costs associated with each. I narrow this down to 10 for which NH HealthCost has data on and are on average some of the most expensive.
| CPT Code | Description | Average Price in NH ($) |
|---|---|---|
| 29,826 | ARTHROSCOPY SHOULDER DECOM | 19,605 |
| 42,820 | TONSILLECTOMY&ADNOIDECTOMY:UNDER AGE 12 | 8,170 |
| 43,239 | UPPER GI ENDOSCOPY, BIOPSY | 4,022 |
| 45,378 | DIAGNOSTIC COLONOSCOPY | 3,435 |
| 70,551 | MRI BRAIN ‐ W/OUT CONTRAST | 2,731 |
| 70,450 | CT BRAIN ‐ W/OUT CONTRAST | 1,620 |
| 76,856 | PELVIC ULTRASOUND ‐ NON OBGYN ( NON PREGNANCY) | 712 |
| 76,830 | VAGINAL ULTRASOUND ‐ NON OBGYN (NON PREGNANCY) | 690 |
| 99,283 | ED VISIT‐ PROBLEM(S) ARE OF MODERATE SEVERITY | 624 |
| 72,100 | SPINE X‐RAY (LUMBAR PA‐LAT) | 389 |
I also use 2015 outpatient charge data from the Center for Medicaid and Medicare Services (CMS) to determine what kind of outpatient procedures tend to generate the greatest expenditures (as a result of both quality and price) as shown in Figure 2. In doing so, I assume that these outpatient patient procedures are at least somewhat representative of those required among non-Medicare patients.
| Ambulatory Payment Classification (APC) | Total 2015 Revenue (in $) |
|---|---|
| 0634 - Hospital Clinic Visits | 46,843,337 |
| 0269 - Level I Echocardiogram Without Contrast | 6,188,455 |
| 0377 - Level II Cardiac Imaging | 4,277,336 |
| 0207 - Level III Nerve Injections | 3,653,749 |
| 0015 - Level II Debridement & Destruction | 1,912,302 |
| 0336 - Magnetic Resonance Imaging and Magnetic Resonance Angiography without Contrast | 1,823,253 |
| 0267 - Level III Diagnostic and Screening Ultrasound | 1,761,210 |
| 0632 - Level 2 Examinations & Related Services | 1,323,198 |
| 0270 - Level II Echocardiogram Without Contrast | 1,105,370 |
| 0204 - Level I Nerve Injections | 844,183 |
For the exact same service, hospitals are able to charge different payers vastly different amounts. Below are some visual examples from the data that illustrate this variation between the three major private payers in New Hampshire (Anthem - NH, CIGNA, and Harvard Pilgrim Health Care) for the exact same service at the exact same hospital.
For hospitals which had a price range between insurers >$100 for ankle x-rays: 
Theoretical Framework
Both the hospital and the insurer are often interested in maximizing their profit margins per patient, even if the hospital is a non-profit (Horwitz 2005), and maximizing the number of patients they serve. Hospitals want to receive higher prices for their services but also to be included in insurers’ networks, as patients facing lower out-of-pocket costs when going to hospitals in network may be more likely to go to these hospitals. Insurers want to pay lower prices for hospitals’ services to minimize their costs but also want to attract enrollees by including convenient hospitals in their network. Thus, this is the bargaining environment in which bilateral hospital-insurer contracts are negotiated and the work below examines the impact on prices.
Data Sources
Raw data from NH HealthCost
The primary source of data on hospital costs comes from NH HealthCost which provides insurer-hospital specific estimations of total costs (reimbursements) for a long list of outpatient services and procedures. I copy and pasted this information for particular medical procedures and services into Excel spreadsheets (one for each medical procedure/service). At first, I attempted to mimic the 8 selected services analyzed in Cooper et al. (2018) (Inpatient, Hip Replacement, Knee Replacement, Cesarean Section, Vaginal Delivery, PTCA, Colonoscopy, and Lower Limb MRI), but the website only had data for colonoscopies and MRIs. I therefore chose to first look at radiology services only as these types of services (CT scans, MRIs, X-rays) should be reasonably assumed to have constant costs and quality within the same hospital. This allowed me to construct a data set containing the estimated price for each procedure and each provider-insurer combination for which data was available.
The following boxplot depicts the various distributions of estimated prices for each private insurer.
## Warning: Removed 4 rows containing non-finite values (stat_boxplot).
Insurance Coverage in New Hampshire
The pie charts below are taken from the NH Insurance Department 2017 Final Report of Health Care Premium and Claim Cost Drivers (published November 2018) and illustrate relevant information about the insurance market in New Hampshire.
Location of New Hampshire Hospitals (from Google Maps data):
CMS Data on Provider ID and Medicare Reimbursement:
Statistical Analysis
Methodology
The goal of this analysis is to determine whether there is a statistical difference between the prices hospitals charge Anthem, Harvard Pilgrim, and CIGNA in New Hampshire. That is, for the same service at the same hospital, is one insurer consistently paying a higher amount than the other two?
I create dummy variables for each of the insurers and a new variable (“percent_of_anthem”) which is the price as a percentage of the price Anthem pays for the same procedure at the same hospital. Data on the price Anthem pays certain hospitals for certain procedures is unavailable either because Anthem does not have a contract with that hospital or price information is simply not available for that particular procedure. This leads 1360 observations of 4511 total observations to be dropped from the analysis, leaving 3151 observations (unique hospital-insurer-procedure combinations) remaining. With the remaining data, I regress the “percent_of_anthem” variable on each insurer dummy variable (with the Anthem dummy being excluded) and include procedure fixed effects and hospital fixed effects to isolate within-hospital variation of prices and therefore plausibly control for quality and costs.
The results are listed below and show that CIGNA pays on average 24.594% more than Anthem and Harvard Pilgrim pays on average 12.936% more than Anthem.
##
## ====================================================================================================
## Dependent variable:
## ---------------------------
## percent_of_anthem
## ----------------------------------------------------------------------------------------------------
## CIGNA 24.594***
## (2.620)
##
## Harvard_Pilgrim_HC 12.936***
## (2.385)
##
## factor(provider_name)Advanced Foot Ankle Specialists
## (27.426)
##
## factor(provider_name)Afc Urgent Care 18.143
## (45.805)
##
## factor(provider_name)Affiliates In Podiatry 1.808
## (27.426)
##
## factor(provider_name)Alice Peck Day Memorial Hospital 32.206*
## (17.122)
##
## factor(provider_name)Andrea M Dionne, DO 42.603*
## (24.357)
##
## factor(provider_name)Androscoggin Valley Hospital 54.418***
## (15.807)
##
## factor(provider_name)Anna Jaques Hospital 10.968
## (10.758)
##
## factor(provider_name)Appledore Medical Group 189.547***
## (27.659)
##
## factor(provider_name)Atlantic Orthopaedics 15.218
## (12.247)
##
## factor(provider_name)Atlantic Urology Associates 34.942
## (46.227)
##
## factor(provider_name)Atrius Health 30.288
## (27.659)
##
## factor(provider_name)Bedford Ambulatory Surgical Center 17.533
## (14.873)
##
## factor(provider_name)Bedford Ambulatory Surgical Center Imaging 15.553
## (21.837)
##
## factor(provider_name)Bedford Commons OBGYN 36.607**
## (14.809)
##
## factor(provider_name)Bedford Podiatry Group -2.953
## (27.426)
##
## factor(provider_name)Bedford Women's Care Associates 45.910
## (33.262)
##
## factor(provider_name)Capital Orthopaedic Surgery Center 42.173*
## (21.994)
##
## factor(provider_name)Catholic Medical Center 19.934*
## (11.810)
##
## factor(provider_name)Center For Diagnostic Imaging -47.633*
## (27.683)
##
## factor(provider_name)Concord Ambulatory Surgery Center 10.544
## (25.532)
##
## factor(provider_name)Concord Endoscopy Surgery Center 19.092
## (17.471)
##
## factor(provider_name)Concord Hospital 29.826***
## (9.278)
##
## factor(provider_name)Concord Imaging Center 50.277***
## (13.907)
##
## factor(provider_name)Concord OBGYN 42.220*
## (24.465)
##
## factor(provider_name)Concord Orthopaedics 4.147
## (10.777)
##
## factor(provider_name)Convenient MD 5.798
## (11.947)
##
## factor(provider_name)Core Physicians 25.796**
## (11.458)
##
## factor(provider_name)Cottage Hospital -3.844
## (21.841)
##
## factor(provider_name)Dartmouth-Hitchcock (Concord) 18.028
## (13.791)
##
## factor(provider_name)Dartmouth-Hitchcock (Keene) 22.595
## (14.550)
##
## factor(provider_name)Dartmouth-Hitchcock (Manchester) 25.984**
## (13.160)
##
## factor(provider_name)Dartmouth-Hitchcock (Nashua) 23.280*
## (13.291)
##
## factor(provider_name)Dartmouth-Hitchcock Clinic 20.634
## (28.121)
##
## factor(provider_name)Dartmouth-Hitchcock Medical Center 25.328
## (17.311)
##
## factor(provider_name)Derry Imaging Center 17.852
## (12.829)
##
## factor(provider_name)Dover Foot 70.135**
## (27.426)
##
## factor(provider_name)Dover Women's Health 57.930***
## (16.778)
##
## factor(provider_name)Elliot Hospital 8.484
## (9.017)
##
## factor(provider_name)Elliot One-Day Surgery Center 29.027
## (33.296)
##
## factor(provider_name)Elliot Physician Network 9.465
## (45.949)
##
## factor(provider_name)Essex Orthopaedics Sports Medicine
## (12.917)
##
## factor(provider_name)Exeter Hospital 25.050***
## (9.172)
##
## factor(provider_name)ExpressmedExpressmed 41.486
## (33.263)
##
## factor(provider_name)Feminist Health Center of Portsmouth 13.813
## (33.262)
##
## factor(provider_name)Foot Health Center of Merrimack Valley 3.061
## (27.426)
##
## factor(provider_name)Foundation Medical Partners 43.543***
## (13.146)
##
## factor(provider_name)Four Seasons Imaging -16.089
## (17.935)
##
## factor(provider_name)Franklin Regional Hospital -13.096
## (20.328)
##
## factor(provider_name)Frisbie Memorial Hospital 36.793
## (27.569)
##
## factor(provider_name)Garrison Women's Health Center 58.829***
## (15.602)
##
## factor(provider_name)Granite State Lab 38.621
## (27.659)
##
## factor(provider_name)Granite State Podiatry Associates -3.891
## (27.426)
##
## factor(provider_name)Greater Salem Family Footcare Associates 3.045
## (32.995)
##
## factor(provider_name)Harbour Women's Health 32.154*
## (17.474)
##
## factor(provider_name)Hillside Surgery Center 12.401
## (33.998)
##
## factor(provider_name)Huggins Hospital 7.827
## (17.046)
##
## factor(provider_name)Krislan of New England 29.480
## (24.353)
##
## factor(provider_name)Kristin Visco, Dpm Aacfas 12.251
## (32.997)
##
## factor(provider_name)Laboratory Corporation of America 20.764
## (27.659)
##
## factor(provider_name)Laconia Clinic 39.111
## (46.023)
##
## factor(provider_name)Lahey Health 33.219**
## (16.010)
##
## factor(provider_name)Lakes Region General Healthcare 17.570
## (11.430)
##
## factor(provider_name)Lawrence General Hospital 11.769
## (16.570)
##
## factor(provider_name)Littleton Regional Healthcare 134.241***
## (11.798)
##
## factor(provider_name)Lowell General Hospital 27.898**
## (12.070)
##
## factor(provider_name)LRGHealthcareLRGHealthcare 26.792*
## (14.069)
##
## factor(provider_name)Maine Health -19.712
## (27.659)
##
## factor(provider_name)Manchester Obstetrical Associates 24.003
## (15.800)
##
## factor(provider_name)Manchester Urology Associates 50.153*
## (28.121)
##
## factor(provider_name)Martin's Point Health Care 16.614
## (21.937)
##
## factor(provider_name)Mary Hitchcock Memorial Hospital 28.396***
## (9.077)
##
## factor(provider_name)Mary Jo Montanarella, MD 26.698
## (20.584)
##
## factor(provider_name)Memorial Hospital 21.376**
## (9.779)
##
## factor(provider_name)Merrimack Valley Endoscopy Center 20.785
## (28.005)
##
## factor(provider_name)Michael P. Romanowsky Family Medicine 9.247
## (33.194)
##
## factor(provider_name)Monadnock Community Hospital 10.111
## (11.119)
##
## factor(provider_name)Monadnock OBGYN Associates 29.695*
## (16.687)
##
## factor(provider_name)New England Foot Ankle
## (27.426)
##
## factor(provider_name)New Hampshire Neurospine Institute 8.821
## (17.221)
##
## factor(provider_name)New Hampshire Orthopaedic Center 15.149
## (10.628)
##
## factor(provider_name)Northeast Endoscopy Center 16.344
## (33.426)
##
## factor(provider_name)Northeast Urologic Surgery 26.058
## (28.121)
##
## factor(provider_name)Northeastern Vermont Regional Hospital 14.064
## (20.344)
##
## factor(provider_name)Orchard Surgical Center 15.911
## (19.264)
##
## factor(provider_name)Orthopaedic Surgical Associates 12.199
## (16.330)
##
## factor(provider_name)Orthopaedics Northeast 1.329
## (17.858)
##
## factor(provider_name)Parkland Medical Center 20.522**
## (10.218)
##
## factor(provider_name)Partners For Women's Health 25.233
## (17.474)
##
## factor(provider_name)Pentucket Medical Associates 4.647
## (27.659)
##
## factor(provider_name)Peter Joseph Degnan, MD -17.860
## (27.659)
##
## factor(provider_name)Portsmouth Ambulatory Surgery Center 40.660**
## (16.995)
##
## factor(provider_name)Portsmouth Foot Ankle
## (27.426)
##
## factor(provider_name)Portsmouth Regional Hospital 62.531***
## (9.531)
##
## factor(provider_name)Quest Diagnostics 35.844
## (27.659)
##
## factor(provider_name)Saco River Medical Group -2.559
## (33.194)
##
## factor(provider_name)Seacoast Orthopedics Sports Medicine
## (10.633)
##
## factor(provider_name)Shields Imaging -0.809
## (15.866)
##
## factor(provider_name)Southern New Hampshire Internal Medicine Associates 24.762
## (32.995)
##
## factor(provider_name)Southern NH Medical Center 10.349
## (9.104)
##
## factor(provider_name)Speare Memorial Hospital 20.959**
## (9.505)
##
## factor(provider_name)Springfield Medical Care System 21.560*
## (12.807)
##
## factor(provider_name)St. Joseph Hospital 3.067
## (9.302)
##
## factor(provider_name)Steward Medical Group 18.355*
## (10.629)
##
## factor(provider_name)Stratham Ambulatory Surgery Center (paradigm ) 12.510
## (19.248)
##
## factor(provider_name)Terrance George Hanlon, MD 33.992
## (27.659)
##
## factor(provider_name)The Surgery Center of Greater Nashua 15.064
## (24.534)
##
## factor(provider_name)Thomas Vaill King, MD 11.267
## (21.789)
##
## factor(provider_name)Upper Connecticut Valley Hospital 57.529***
## (20.268)
##
## factor(provider_name)Valley Regional Hospital 9.320
## (10.643)
##
## factor(provider_name)Veterans Administration Medical Center -4.564
## (15.355)
##
## factor(provider_name)Weeks Medical Center 10.468
## (15.841)
##
## factor(provider_name)Wentworth Surgery Center 14.912
## (15.875)
##
## factor(provider_name)Wentworth-Douglass Hospital 122.881***
## (27.659)
##
## factor(provider_name)William Albert Selleck, MD 41.990
## (28.121)
##
## factor(provider_name)Women's Life Imaging 42.551
## (27.569)
##
## factor(provider_name)York Hospital 20.779**
## (9.950)
##
## factor(procedure)Blood test for complete blood cell count (hemoglobin) 2.936
## (12.625)
##
## factor(procedure)Bone Density Scan (outpatient) 0.000
## (13.539)
##
## factor(procedure)Colonoscopy with biopsy (outpatient) -25.914**
## (12.845)
##
## factor(procedure)Colonoscopy with polyp removal (outpatient) -26.521**
## (12.720)
##
## factor(procedure)CT - Abdomen Pelvis, with contrast
## (13.731)
##
## factor(procedure)CT - Chest (outpatient) -4.011
## (14.210)
##
## factor(procedure)CT - Head&Brain, without dye 5.381
## (15.590)
##
## factor(procedure)Diagnostic colonoscopy (outpatient) -26.710**
## (12.269)
##
## factor(procedure)Mammogram (outpatient) -32.321***
## (12.448)
##
## factor(procedure)MRI - Back (outpatient) 16.820
## (13.053)
##
## factor(procedure)MRI - Brain (outpatient) -4.336
## (13.908)
##
## factor(procedure)MRI - Knee (outpatient) -8.608
## (13.048)
##
## factor(procedure)MRI - Pelvis (outpatient) -21.029
## (16.344)
##
## factor(procedure)MRI - Shoulder, Elbow, or Wrist 5.523
## (13.203)
##
## factor(procedure)Myocardial Imaging (outpatient) -22.404
## (14.818)
##
## factor(procedure)Ultrasound - Abdominal, Complete -17.555
## (13.321)
##
## factor(procedure)Ultrasound - Abdominal, Limited -13.802
## (13.702)
##
## factor(procedure)Ultrasound - Breast (outpatient) -16.279
## (13.273)
##
## factor(procedure)Ultrasound - Head and Neck -28.093**
## (13.369)
##
## factor(procedure)Ultrasound - Pelvic (outpatient) -7.234
## (15.056)
##
## factor(procedure)Ultrasound - Pregnancy (outpatient) -23.931*
## (13.296)
##
## factor(procedure)Ultrasound - Pregnancy follow-up -24.231*
## (13.066)
##
## factor(procedure)Ultrasound - Transvaginal (non-maternity) -11.944
## (12.872)
##
## factor(procedure)Urine Capacity Measurement -22.541*
## (13.634)
##
## factor(procedure)X-Ray - Abdomen 18.260
## (13.996)
##
## factor(procedure)X-Ray - Ankle (outpatient) -3.543
## (12.682)
##
## factor(procedure)X-Ray - Chest (outpatient) -6.765
## (12.852)
##
## factor(procedure)X-Ray - Foot (outpatient) -5.742
## (12.364)
##
## factor(procedure)X-Ray - Hand -7.864
## (12.690)
##
## factor(procedure)X-Ray - Hip -9.003
## (12.690)
##
## factor(procedure)X-Ray - Knee (outpatient) -9.259
## (12.531)
##
## factor(procedure)X-Ray - Middle Back (Spine, Thoracic) -1.239
## (17.008)
##
## factor(procedure)X-Ray - Neck (Spine, Cervical) 1.316
## (13.853)
##
## factor(procedure)X-Ray - Pelvis -14.928
## (15.702)
##
## factor(procedure)X-Ray - Shoulder (outpatient) -14.529
## (12.481)
##
## factor(procedure)X-Ray - Spine (outpatient) -0.475
## (12.780)
##
## factor(procedure)X-Ray - Wrist (outpatient) -11.409
## (13.155)
##
## Constant 87.599***
## (13.914)
##
## ----------------------------------------------------------------------------------------------------
## Observations 1,974
## R2 0.267
## Adjusted R2 0.204
## Residual Std. Error 44.902 (df = 1818)
## F Statistic 4.264*** (df = 155; 1818)
## ====================================================================================================
## Note: *p<0.1; **p<0.05; ***p<0.01